Sony (SNE) Plans To Acquire EMI Music Publishing For $2.3B

In a bid to shift away from low-margin consumer electronics and strengthen entertainment portfolio, Sony Corporation (NYSE:SNE) announced plans to gain control of EMI Music Publishing. The company has agreed to buy all of the roughly 60% stake in EMI Music held by Mubadala Investment Company. This will increase Sony's stake to 90%, making it a consolidated subsidiary. EMI Music owns or administers more than 2 million songs.

The deal is based on an enterprise value of $4.75 billion. Sony will also assume EMI Music's existing gross debt of about $1.359 billion as of Mar 31, 2018.

The music business has witnessed a strong resurgence in the past couple of years, primarily driven by the growth of paid subscription-based streaming services. EMI Music’s extensive catalog will fortify Sony’s position as the leading music publisher amid a boom in streaming services that has boosted the value of music copyrights.

The acquisition is the biggest so far by Kenichiro Yoshida, who became Sony’s new CEO in April. Sony is gradually shifting its focus away from making commodity products like televisions, personal computers and mobile phones. Instead, the company is expanding in areas like music, movies and games as well as building image sensors for mobile phone cameras. In May, Sony acquired a stake in Peanuts Holdings, the company behind Snoopy and Charlie Brown. The move was also aimed at strengthening Sony’s content.

Yoshida also unveiled a three-year plan highlighting Sony’s increasing reliance on income from gaming subscriptions and entertainment. The Japanese gaming giant plans to invest ¥1 trillion ($9 billion) over the next three years, primarily in image sensors, per its revamped strategy to fortify hardware and creative content.

In its mid-year plan, the company projected profit growth in most divisions over the next three years, but offered a somewhat conservative outlook. Sony expects operating profit in its video games and network services business to fall between ¥130 billion and ¥170 billion in the fiscal year ending March 2021, down from the ¥190 billion forecast for the current fiscal year.

At the time, its PlayStation 4 (PS4) will near the end of a game console's typical life cycle. Operating profit in the semiconductor business is expected to grow in the range of ¥160-200 billion at the end of the forecast period compared with a prediction of ¥100 billion for the current fiscal year.

The Zacks Rank #2 (Buy) company’s shares have appreciated 36.1% over the past year, which compares favorably with the industry’s rally of 27.6%. Further, analysts have also revised the company’s estimates higher, recently. The Zacks Consensus Estimate for fiscal 2019 has gone up from $3.77 recorded a couple of months back to $4.21 today — an improvement of 11.7%. This indicates that analysts are feeling distinctly bullish about the stock.

Other Stocks to Consider

A few other top-rankedstocks worth a look include H&R Block, Inc. (NYSE:HRB) , SP Plus Corp. (NASDAQ:SP) and Monro Muffler Brake, Inc. (NASDAQ:MNRO) . All the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

H&R Block surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 5.7%.

SP Plus outpaced estimates in three of the preceding four quarters, with an average positive earnings surprise of 12%.

Monro Muffler Brake beat estimates twice in the preceding four quarters, with an average positive earnings surprise of 0.9%.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>